The Real Lesson to Learn from Ford’s Famous $5 Day

If there’s one thing I dread about the income inequality debate in general, and the minimum wage debate in particular, it’s those occasional uncomfortable moments when the anti-union, anti-immigrant, anti-semitic Henry Ford is brought up as an icon of demand-side economics. In 1914 Ford famously implemented the $5 Day (about $117 in 2014 dollars), more than twice the $2.25 prevailing wage at the time for a 9-hour auto factory shift. The story goes—and it’s a story perpetuated by Ford himself—that the goal was to pay his workers enough to transform them into car buyers themselves, thus increasing sales.

It’s a great story, and one that neatly illustrates the demand-side arguments. But unfortunately, it’s bullshit. No, the real reason Ford more than doubled his workers’ compensation was that he came to believe that paying higher wages would conversely lower his labor costs. And he was ultimately proven right.

An early 20th century assembly line job was brutal and brutally monotonous work—hour after hour of performing relentlessly quick, repetitive, and often dangerous tasks. For example, in 1916, nearly 200 severed fingers and more than 75,000 cuts, burns, and puncture wounds were recorded at Ford’s Highland Park plant alone.

So as you can expect, morale was low at Ford’s factories, and the turnover rate high. Absurdly high. As much as 300 percent annually. Throughout the year of 1913, Ford hired 52,000 workers in order to maintain an average workforce of only 14,000. Every new worker required weeks of costly training and break-in. Assembly lines sometimes screeched to a halt for want of enough qualified workers. Absenteeism and turnover made it impossible for Ford to keep up production and produce cars at the low prices his business model demanded.

And so when Ford introduced the $5 Day the next year, it was with an eye toward reducing turnover, thus lowering labor costs and ramping up production. And it worked! Turnover plummeted and productivity soared. The rest of the auto industry initially dismissed Ford as crazy, but they all soon followed his example.

And here’s the thing: once the other auto makers matched Ford’s wages, taking away his competitive advantage in the labor market, turnover didn’t revert to the bad old $2.25 days. Better paid workers do a better job. They’re more loyal. More productive. Less likely to call in sick. And less likely to constantly be on the lookout for a better deal someplace else.

Yes, Ford’s $5 Day did help kickstart the trend toward higher wages that ultimately primed the demand side pump on which our modern consumer-driven economy was built. So that part of the story is true, at least in effect, if not intent. But the benefits to Ford were more direct and immediate. Higher wages delivered better workers, and lower labor costs.

And those are the same sort of financial benefits employers bemoaning the cost of a $15 minimum wage have refused to factor into their equations.

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It seems obvious. So why do conservatives fight this so much? Is it just greed by the owners? Are they afraid of having workers with money? If companies had to pay a living wage, it would expose that they have a failed business model, and they can only stay in business by cheating the workers?

I make $15.38 per hour for my work in a financial institution. The current WA minimum wage is $9.32 per hour. To keep it all proportional, if the minimum wage goes to $15 per hour, then I want something north of $25 per hour to keep pace, and I’m sure there are a lot of other hourly workers out there that feel the same way.

So what’s the point of getting an education and having more in the paycheck than a minimum wage worker? Why did you strive for a better life through education? Are other people evil because they want more and want to get ahead in life?

6,

No, I won’t fight the increase to $15 per hour. I just want my cut, too. If you don’t want more in your paycheck, fine, but I do want more, and I think I deserve it.

@7 “Are other people evil because they want more and want to get ahead in life?”

Some people seem to think so. I can remember when hard work and ambition were respected in this country. Seems like a long time ago now.

Personally, I think education is overrated. The railroads were built by workers who either had no education at all or didn’t get beyond sixth grade. World War 2 was won by a generation of men whose schooling ended somewhere between ninth and twelfth grade. The interstate highway system was built by a country that had relatively few college graduates in its workforce. Microsoft was created by a guy with only a high school diploma.

There was a time in this country when people were promoted and rewarded because they worked hard, learned how to do things, and got things done. That, like so much else, is gone now.

We’ve become a nation of college-educated dumbasses who can’t figure out how to open a lunchbucket let alone manage an economy or a war.

Stop feeling so fucking entitled. The world doesn’t owe you a good living just because you have a degree. As Mark Twain said, the world owes you nothing; it was here first.

@7 Anyway, I don’t know what dream world you live in, but how much people earn has more to do with bargaining power than education or skills. That’s why a union beer truck driver with a high school diploma makes more than a teacher with a master’s degree.

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